Glonass: the way forward

In fact, it was Putin together with his Indian counterparts, Prime Ministers A.B.Vajpayee and Manmohan Singh, who have subjected that friendship to a complete re-setting after 1990-s rough riding. So today the Russian Prime Minister will be reaping the harvest of what he himself had been planting 10 years ago. It is the Presidents who lay foundation of foreign policy in Russia, according to the Con-

stitution. Prime Ministers are in charge of the economy. But it took a lot of political nego-tiations conducted by Presi-dent Putin in the previous de-cade to let the Prime Minister Putin come to Delhi to negoti-ate current agreements on nu-clear power.It is known that Vladimir Pu-tin’s visit will be mainly about Russian nuclear reactors com-missioned by India. There was nothing more political than nuclear issues in the recent years. It was not just foreign policy – global positioning of India and Russia was at stake.I remember vividly the times when the US-Indian 123 deal was in the making. A lot of un-happy faces could be seen in Moscow at the time.

Agenda Bilateral ties await boost during Russian PM's India visit

Putin’s Indo-Russian decade

Looking for an escape from the petro-dollar

CONTINUED ON PAGE 5

CONTINUED ON PAGE 6

With the Russian state run-ning its fi rst budget defi cit in a decade, there is no denying the importance of oil to the economy. But it is a myth to say that Russia is a petro-econo-my.Oil actually only accounts for about a fi fth of Russia’s gross domestic production, whereas services are far more impor-tant and now make up more than half of GDP.

Vladimir Putin, the Prime Minister of Russia comes to India this week almost 10 years after he first visited the country as the head of the Russian State. It has to be said that the “Putin decade” is a very noticeable page in the book of Indo-Russian friendship.

DMITRI KOSYREVRIA NOVOSTI

CLARE NUTTALLBUSINESS NEW EUROPE

Russia and India are expected to sign three contracts in military techni-

cal cooperation totaling $4 bn during Vladimir Putin's visit to India

RussiaIndia

In focus:

Gas and oil: Dreams in the pipeline The new links take politics out of transpor-

tation and offer new options for buyers

P.04-05

...Marching towards a common future

BUSINESS REPORT BANGALORE ● MUMBAI ● NEW DELHI ● Wednesday, March 10, 2010 A Report from The Economic Times In association with Rossiyskaya Gazeta

POLITICS, SOCIETY AND CULTURE

TWICE A MONTHevery second Wednesday of the month

MARCH 10

APRIL 14MARCH 31

APRIL 28every last Wednesday of the month

BUSINESS

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Russia’s rival to the American

GPS mapping and navigation-

al system has moved one step

closer to reality. Three satel-

lites have been launched in-

to orbit on a Proton-M rocket

from the Baikonur space cent-

er in Kazakhstan last week.

Glonass – the Global Navi-

gation Satellite System – is

the Russian equivalent of the

US Global Positioning System

(GPS). The Glonass cluster is

now made up of 20 satellites.

As soon as 24 satellites are

up and running by the end of

2010, Glonass will be able to

offer a similar level of perform-

ance as GPS.

Russia and India are keen

to cooperate on the Glonass

both for military and commer-

cial purposes. India is likely

to link up some of its military

systems with the Glonass

system in order to reduce

its reliance on the American

GPS.

How important is next year’s oil price to Russia’s recovery? Russia assumes $58 per barrel, which leaves a hole in the budget. The World Bank thinks around $75, where Russia almost breaks even. London-based Capital Economics forecasts $50, spelling trouble.

Put another way, the GDP per capita in 2008 was about $15,800, according to the CIA, whereas oil production ac-counted for only $3,912 of this total – and that is assuming oil was at the peak price of $150 for all of last year.Where oil and gas do domi-nate is in both, tax and export revenues where they make up for about two thirds of all the dollars Russia earns abroad.

But the taxes earned from oil are high because the state uses them to subsidise the rest of the economy. The state taxes away about 90 cents on every dollar an oil company earns from oil exports over a price of $27 a barrel, but at the same time Russia has some of the lowest income tax, corporate profi t tax and VAT in Europe.

AF

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Russian Proton-M rocket

carrying a telecommunica-

tions satellite being placed

on a launchpad.

BOOKMARKS02 RUSSIA INDIA BUSINESS REPORT

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_MARCH 10_2010In brief

en.rian.ru RIA Novosti newswirewww.itar-tass.com/eng Itar-Tass news agencyrt.com Russia Today TV channelwww.mnweekly.ru The Moscow News weekly

Auto industry A JV with a truck assembly plant in Hosur launched

KamAZ parks in IndiaKamAZ, a Russian heavy truck manufacturer, and India's Vectra Group have officially launched a joint venture called Kamaz Vectra Motors Limited. The Russian car maker invested $8 mn and plans to assemble the first 1,000-1,200 trucks in India this year.

YULIA GARAYEVAKOMMERSANT

The projected capacity, though, looks modest relative to the scale of KamAZ itself and ex-perts caution that several years should pass before the viability of the project becomes clear.On 25 February 2010, the Ban-galore palace hosted a ceremo-ny to inaugurate Kamaz Vectra Motors Limited, the first as-sembly plant opened by KamAZ together with Vectra Group.Production is based at Vectra’s facility located 70 km from Bangalore in the town of Hosur. The joint venture will initially assemble several types of low-sided and heavy construction dump trucks mounted on the KamAZ-6540 chassis with a right-hand steering wheel, and KamAZ-5460 bolster trucks. The company plans to turn out

from 1,000 to 1,200 trucks in 2010 and step up production to 2,500 vehicles by 2012. The full capacity of the plant is 7,500 ve-hicles a year, but KamAZ gave no indication as to when it ex-pects to achieve this level. KamAZ owns 51 pc of the Rus-sian-Indian joint venture, into which, according to the Russian automaker, the partners invest-ed $16 m ($8 mn each).The part-

ners signed a memorandum of alliance for the joint venture in March 2009. The KamAZ PR Director Oleg Afanasyev said that the fi rst contract had been signed for 15 vehicles with one of the Indian companies, whose name he declined to disclose. “Production and sales are quite modest at this point, but this is only the beginning", he said.The announced annual produc-

tion target of 7,500 is indeed fair-ly small for KamAZ, which used to roll out from 4,500 to 6,000 ve-hicles every month before the global recession. Even now, ac-cording to Mr Afanasyev, KamAZ sells 1,800 trucks, much more than the Kamaz Vectra Motors Limited is going to man-ufacture in 2010. This year KamAZ plans to sell a total of about 27,200 trucks.-

KamAZ trucks are internationally acknowledged as worlds toughest and most reliable trucks.

Russian stocks most attractive among BRIC

MiGs join Indian Navy

The recent decline on the Rus-sian stock market has attracted foreign players, who over the week ended February 24 invest-ed $214 mn in Russian and CIS stocks exceeding the total in-vested in China, Brazil and India. According to Emerging Portfolio Fund Research, this is the second best result in 2010 and the third best since October 2009. The Russian market looks considerably better than the markets of the other BRIC countries. Investors channeled $113 mn into Brazil and with-drew $21.2 mn and $5.4 mn from Chinese and Indian stock

markets respectively. Funds in-vesting in Russia have attracted over $420 mn in total since the beginning of 2010. At the same time, Russia's stock indices underperformed those in industralised and emerging countries, mostly because of speculators' aggressive sales strategies. "Speculators booked profi t amidst the economic un-certainty and weak US macr-oeconomic statistics," said Dmitry Sadovy, the managing director of SI Capital. Gazprom and Sberbank suffered most, losing 3.5 pc and 5.1 pc respec-tively in a week. RIA Novosti

The Indian Navy formally took delivery of Russian-made MiG-29K fi ghters, which will even-tually be deployed on an air-craft carrier being refitted in Russia. Defense Minister A K Antony said the entry into serv-ice of the MiG-29K carrier fi ghters marked a "milestone" for the Indian Navy. "The induc-tion of MiG-29K fi ghters into the naval inventory fulfills a long standing requirement of our Navy," Antony said. The cer-emony, held at the Hansa air-base, was attended by top Indi-an military officials, and a Rus-sian delegation led by Industry and Trade Minister Viktor Khristenko. Russia and India

signed a contract in 2004 for the delivery of 12 single-seat MiG-29K and four two-seat MiG-29KUB fi ghters to be deployed on the Admiral Gorshkov, cur-rently being retrofi tted in Rus-sia for the Indian Navy.RIA Novosti

ALROSA eyes India

Faster rail travel

In the near future, Russian dia-mond producer AK ALROSA will sign long-term contracts with 30 Indian companies for the supply of uncut diamonds, said vice-president of the com-pany, Yurii Okoemov, upon his return from a visit to Mumbai. According to Okoemov 47 In-dian firms became clients of ALROSA in 2009, purchasing diamonds worth a total of $550 mn. “In the future we are plan-ning to increase the number of our partners in India by secur-ing long-term contracts with around 30 Indian companies”, he said. At present ALROSA has made such agreements with only 7 fi rms.During the visit the ALROSA delegation visited several dia-mond processing plants in Mumbai and Gujarat. In Okoe-mov’s opinion. Indian industry in this sphere is “impressive”. He noted that the positive pace of economic growth in India will ensure an increase in the supply of Russian diamonds to the re-public.ALROSA is one of the biggest diamond mining companies in the world, it controls 25 pc of global extraction. The compa-ny’s industrial stock of uncut diamonds makes up $109.3 bn. ITAR TASS

State-owned monopoly Rus-sian Railways launched its fi rst high-speed train service link-ing Moscow with St. Peters-burg. In a country that spans 11 time zones there are really only two ways to travel any great dis-tance: planes and trains. The new high-speed “Sapsan” trains running daily between the two cities will cut the jour-ney to three hours and 45 min-utes at a cost of $80 for a sec-ond-class ticket. Russian Railways hopes to launch a high-speed link be-tween Moscow and Nizhny Novgorod in June. RIR

MiG-29K fighterRussia is expecting a surge of

IPOs in 2010, said Konstantin

Korishchenko, president of the

Moscow Interbank Currency

Exchange (MICEX), speaking

at the annual joint conference

of the London Stock Exchange

and the MICEX group in Mos-

cow early this month. At the

beginning of 2010, the Russian

IPO market opened with the

flotation of the aluminium giant

Rusal on the Hong Kong Stock

Exchange, which brought the

company more than $2.2 bn.

Media reports indicate the flo-

tation of another three subsidi-

aries of the En+ Group – En+

Power, Strikeforce Mining and

Resources and En+ Down-

Stream – is now under consid-

eration. According to the De-

cember forecast by the presi-

dent of Morgan Stanley Bank

(Moscow), in 2010 the volume

of Russian IPOs may amount to

$10 bn, and may include such

major Russian companies as

Alrosa, SUEK, Uralchem, and

Ilyushin Finance. RIR

The number of dollar billion-

aires increased by 50pc in

Russia over the crisis-hit year

of 2009. Novolipetsk Steel

chairman Vladimir Lisin is Rus-

sia’s richest person with a

fortune of $18.8bn, more than

double his wealth last year,

Finans magazine said in its an-

nual billionaires list.

Lisin surpassed last year’s

leader, Onexim Group presi-

dent Mikhail Prokhorov, and

runner-up Roman Abramovich

(best known as the owner of

Chelsea football club), to top a

Russia rich list for the first time.

The list tracks the country’s 500

wealthiest individuals, offer-

ing estimates of their financial

worth at the end of 2009. And

while the billionaires parade

found a new leader, the top

spots were all held by familiar

faces. RIR

Business newsDollar billionaires buck the trend

Flotations on the crest of a wave

Foreign direct investment in

Russia will recover to $60-

70bn in the next two to three

years, deputy prime minister

and finance minister Alexei

Kudrin said at the Russia 2010

Forum. “I am confident that

we will begin to recover the

pre-crisis level, and in the next

two to three years will restore

foreign direct investment to

$60-70 bn.” The large flow of

investment prior to the crisis

was the product of stringent

macroeconomic and budgetary

policy and the elimination of re-

strictions on capital movements

in 2006, he said. RIR

Foreign investment will top $60bn

Global Russia business calendar9th Annual Russian Retail Forum March 23-25, Marriott Grand Hotel, Moscow Hear from the leading domestic and international

retail players as they analyse all the latest trends

and developments and debate the burning issues in

today’s industry – such as increasing market share

and profitability in a volatile economic climate.

www.adamsmithconferences.com

The 3-rd Annual Summit Digital TV RussiaMarch 22-23, Holiday Inn Suschevsky, Moscow As a digital switchover progresses in Russia, the

government plans to spend 122.5 bn roubles

($4 bn) by 2015. In one of the major projects, it leads

the way to new investment areas and strategic part-

nerships. As key decisions on digital transition are still

being made, there is a wealth of opportunities to tap

into the vast Russian market

www.adamsmithconferences.com

Find more in the Global Calendar

at www.rbth.ru

EurasiaBio'2010April 13-16, The World Trade International Trade Center, MoscowThis is the global event in biotechnology and bio-

economy, determining priorities of the industry de-

velopment in Russia, discussing practical issues

concerning active integration of biotechnology in the

economy, attracting investments for perspective com-

mercial projects. www.eurasiabio.org

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03BOOKMARKS RUSSIA INDIA BUSINESS REPORT

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_MARCH 10_2010 Economy

www.rusembassy.in Embassy of the Russian Federa-tion in Indiawww.russiancentre.org.in/eng Russian Centre of Culture and Science in New Delhi

RIR Dossier

How important are the ties be-tween Russia and India today?As regards Russia, we have al-ways attached exceptional im-portance to our cooperation and interaction with India, even before its independence. We were fi rst to establish dip-lomatic relations four months before India became free. Over all these years, strategic part-nership with India has re-mained a cornerstone of Rus-sia’s foreign policy. As we un-derstand these relations were important for India as well. I agree that this is a brilliant and graphic example of bilateral ties when we work together for the betterment of the world, for eradicating the scourges of new threats and challenges facing the world today. It is our important contribution to the world politics.

This is your second term as Ambas-sador in Delhi. And you were the Ambassador here five years ago. In the space of these five years, what difference do you see in the ties between our countries?Our ties have become much more mature because we have always cooperated very closely in such crucial areas as defense, space, industries, etc. In these five years, our relations have risen to a qualitatively higher level. It is not a secret that we do not cooperate with all countries in such state-of-the-art, razor-edge technologies as nuclear energy, space and in such confi -dential sphere as defence. This gives me reason to assert that the relations have matured a lot. The good testimony to that is a never-ending stream of visitors which we have had during the last month. In December, Dr Manmohan Singh, Prime Min-ister of India, visited Moscow. It was a regular summit but it was crowned by a momentous im-portant nuclear agreement which was initialed in Moscow and will be signed during the visit of Mr Vladimir Putin. Re-cently, we had the visits of Mr V.Churov, Chief Election Com-missioner, Mr Nikolai Patrush-ev, Secretary of the Security Council, Mr Sergey Sobyanin, Deputy Prime Minister and the Head of staff of the Govern-ment. By the end of the year, our

President, Mr Dmitry Medvedev will arrive in India for his regu-lar annual summit with Dr Manmohan Singh. I think such extremely busy schedule shows the highest priority which we attach to the relations of strate-gic cooperation with India.

What are the key challenges that both countries face?The challenges of development and progress. We are also de-veloping our economy. In this sense, India is in a better posi-tion because you have mas-tered free market economy for a much longer period of time than Russia. We've only been building our market economy for 20 years. We are freshies in that rough world because dur-ing the 73 years of the commu-nist rule we forgot how such economy worked, though Rus-sia used to be a well-developed capitalist economy before the revolution. By reemerging we strive to build a better life for our countries and better con-ditions for Russia in the world diplomacy.

When you look at the global chal-lenges: the global warming, the fi-nancial slowdown, terrorism, how can countries work together, par-ticularly India and Russia?We can learn a lot from you, which we do. It is not a secret that even against background of the world economic crisis India has succeeded in choosing bet-ter ways to escape the harsh con-sequences of that recession. It is a very welcome development. You were very sensitive to the

world trends. Even now you have such high growth rate of your economy – more than 7.7 pc – which we would dream of. It is due to a wise economic policy of not associating with speculative capitals in the West. We need your experience because, unfor-tunately, we have suffered much more than India, since our econ-omy has been oriented towards outside markets more than in-side, unlike yours. So we need your experience as regards the global challenges. As I have mentioned, our position on in-ternational terrorism and the necessity to combat it with all possible means and methods re-mains the same. Russia, like India being a victim of interna-tional terrorism, understands your feelings very well.

The economic ties between India and Russia still have not reached their full potential. It is currently around $10 bn, but there is talk of reaching $20 bn in another five years.We have to clearly divide this into two categories, i.e. com-mon trade, which is, unfortu-nately, not to the best of our ex-pectations. Our present turno-ver is around $7.5 bn, which is just peanuts for such mighty powers as India and Russia, considering our potential and our abilities. If we mention the construction of Kudankulam nuclear power station, it is also economic cooperation. It is the best, shining example of good economic cooperation. We have almost completed two units with four or even six units

more in the anvil making it all-together eight. We have also got a new site in West Bengal to build four or six NPP units. We understand that India’s re-quirements in energy are grow-ing in geometrical proportion and nuclear energy is the only real way to meet them.We wish trade figures were higher. We want to reach $10 bn this year or next year. Then we want to have it 15 or even 20 bn. In this fi eld the sky is the limit. But again, I would like to say that our Indian partners, pri-vate businesses should be more energetic, should be more force-ful even aggressive, because the Soviet times are over, when we would deliver our contracts and orders on a silver plate. They have to fi nd business opportu-nities themselves, but they have been slow. First they were blam-ing the crime situation – but now it is all in the past, the situ-ation has drastically changed. Then there were defi ciencies in the Russian law which prevent-ed them from coming to Russia. Now this has been also changed b y M r P u t i n ’s a n d M r Medvedev’s governments. So they should be more active.One of the problem areas in economic equation is that it is mostly commodities, it is not diversifi ed in services.I agree that we have to diversi-fy our trade relations to serv-ices, not only commodities, so that India would buy from us not only oil or other raw mate-rials but services and technol-ogies as well. I remember the times when Russia built India’s

first antibiotics plant in Rishikesh. But now we are in-viting and welcoming our In-dian friends to come to my country and open joint ven-tures in pharmaceuticals, es-pecially in our provinces. But joint ventures always need start-up capital. Let it be 49/51. Unfortunately, our friends are not so eager to spend one rupee for investment in order to get two or three or five the day after tomorrow. Much hope is still laid on ‘sell and buy’.I think, part of the problem lies in the perception, common to the Indian planners as well, that Western Europe and North America are markets while Russia, South-East Asia, Afri-ca and Latin America are a new and unexplored destina-tions.

What the Russian side could offer as an incentive in this respect?I think that the major incentive is our favourable taxation cli-mate with taxes being just fl at 13 pc, excellent for bringing capitals in. Not many countries have such taxes. We have the most comfortable conditions for establishing and operating joint ventures in the already mentioned area of drugs and pharmaceuticals, the support has been guaranteed at the highest level.

Prime Minister Vladimir Putin is coming to New Delhi . What can we expect from his visit?Like any visit of such level from Russia to India, I think it will herald a deeper understanding between our leaders. As we know, this year will be the 10th anniversary of the historic Dec-laration on strategic partner-ship between Russia and India. Ten years have passed and Mr Vladimir Putin, who signed that document, is coming here. We have every reason to say that he has become the architect of a new strategic phase in our rela-tions after the hazy uncertain-ties in Russia in the preceding period. In these ten years Rus-sian-Indian relationship has seen many shining examples of very productive and useful co-operation. Of course, a number of agreements will be signed. We do welcome such intensive two-way traffic in our relationship. I wish it were as intensive as the Delhi traffic but, please, no grid-locks or jams! -

Alexander M. Kadakin, Ambas-

sador Extraordinary and Plenipo-

tentiary of the Russian Federa-

tion to the Republic of India, was

born on July 22, 1949 in the city

of Kishinev, USSR. Graduated

from the Moscow State Institute

(University) of International Re-

lations under the Ministry of For-

eign Affairs of the USSR in 1972.

Joined the diplomatic service in

1972. Began his career as at-

tache at the Soviet Embassy in

New Delhi 40 years ago, and

afterwards, in 1999 – 2004,

was Russia’s envoy to India. In

2000, during his ambassadorial

mission, the leaders of the two

countries signed an essential bi-

lateral Declaration on Strategic

Partnership. Alexander Kadakin

was also Russian Ambassador

to Nepal and Sweden. He speaks

English, Hindi, Urdu, French, Ro-

manian.

Interview Indian businesses should be more energetic and persistent towards finding good investment opportunities in Russia, Ambassador Kadakin believes

On a growth pathIndo-Russian economic relations have weathered the global crisis and are on course for further growth. His Excellency Alexander Kadakin, Ambassador of the Russian Federation to the Republic of India, chalks out the future roadmap for India and Russia to effectively realize the full potential of their ties.

Business news

This interview was conducted by a Russian TV channel.

India and Russia are negoti-

ating a new contract on the

delivery of 42 Su-30MKI to the

Indian Air Force. According to

the Daily News and Analysis

newspaper, the new deal,

which is reportedly worth more

than $3 bn, has been in the

works for several months. The

new air-superiority fighters will

come on top of the 230 already

contracted from Russia in three

deals worth a total of $8.5 bn.

RIA Novosti

Certification of the new Rus-

sian Ka-226T helicopter will

wrap up in 2012, said Sergei

Mikryukov, managing director

of the Kumertau Aviation Pro-

duction Enterprise (KumAPP).

The Ка-226Т will participate in

a tender recently announced

by the Indian government. The

winner will receive an order for

97 aircraft to be delivered to

India and be charged with or-

ganising the licensed produc-

tion of 100 more helicopters

within India itself. Regardless

of the results of the tender,

marketers at Helicopters of

Russia, KumAPP’s parent com-

pany, estimate that sales of the

Ka-226T at home and abroad

should total at least 800 over

the next 15 years.

Vremya novostei

Russia and India have agreed

on cooperation in bio technol-

ogy. Indian experts and repre-

sentatives of the Federation of

Asian Biotech Associations are

to arrive in Moscow to visit the

“EuroasiaBio-2010” congress

(April 13-16). Under the joint

projects, the two countries will

found a Russian-Indian scien-

tific center for biotechnology

and pharmaceutics in Russia,

produce a vaccine based on

Russian technology and to use

stem cells in ophthalmology

applying a unique Indian devel-

opment. Voice of Russia

Cooperation in bio technology

India set to buy 42 more Su-30 jets

New helicopter to go into mass production

An agreement on the peaceful

use of nuclear energy is ready

for signing. “I am sure the ac-

cord will be signed during the

visit of Vladimir Putin,” said

Sergei Sobyanin, deputy prime

minister, on a recent visit to

India. Russia plans to build upto

20 power reactors. Six reactors

will be built at the Kudankulam

site in Tamil Nadu, and from

four to six reactors in Haripur in

West Bengal. RIA Novosti

Russia, India to sign civil nuclear accord

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BOOKMARKS04 RUSSIA INDIA BUSINESS REPORT

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_MARCH 10_2010Energy

www.gazprom.com Gazprom company official websitewww.oilru.com/or/39 Oil of Russia magazinewww.oilandgaseurasia.com Oil and gas magazine

Soviet pipelines built in the 80s of the 20th century are still in place, but a raft of energy infrastructure deals and the launch of several new routes signal major shifts in the post-Soviet oil and gas network. A lattice of new pipelines should make relationships more civlilised, offering Asian countries more options for energy supplies.

Gas and oil New energy links could take the politics out of transportation

Dreams in the pipeline

Russia has clashed several times with Ukraine over unpaid gas bills – resulting in most of Eu-rope being cut off from crucial gas supplies in the depths of winter. This year, a row was avoided after Kyiv, with the help of the International Monetary Fund scraped together the cash to pay its bill on time. But, two new gas pipelines to the north and south of Ukraine should end the uncertainty completely.Russia’s imperialistic hold over the oil and gas producers in Cen-tral Asia – inherited from the So-viet Union in the form of oil and gas pipelines – has also been broken. A new gas pipeline run-ning from the gas-rich republic of Turkmenistan, in tandem with the currently operating oil

pipeline snaking from oil-rich Kazakhstan to China, threatens to be a game-changer.The Kremlin’s response has been to build more pipelines, also heading east. One possible result of this emerging lattice of pipe-lines is that energy relations in and around the Continental and Asian landmass will become more civilised as competing routes force both, buyer and sell-er to put market interests fi rst and politics a defi nite second.

Changing the gameOn December 14, Chinsese pres-ident Hu Jintao joined his Turk-men counterpart Gurbanguly Berdimuhamedov to inaugu-rate the new Trans-Asian pipe-line that allows energy hungry China to tap Central Asia’s co-pious supplies of gas. “The new pipeline marks an economic power shift to the benefi t of three Central Asian countries and China and to the detriment of Russia,” says Philip H de Leon, the publisher of OilPrice.com.The Trans-Asian gas pipeline cost $6.7 bn to build and is the first out of the Caspian region that runs east, linking Turkmen-istan’s massive gas basin with China’s west-east gas pipeline. Now, Turkmen gas can be sent as far as Shanghai and Hong Kong.

The pipeline will carry upto 40 billion cubic metres (bcm) by 2013 – accounting for almost half of China’s gas needs.China’s growing importance in the region led the Kremlin to fol-low suit last November: Prime Minister Vladimir Putin signed a deal that promises to deliver 68 bcm a year to China through two new pipelines starting in Sibe-ria – providing China with the other half of the gas it needs. The Russian deal represents an abrupt about-face for the Krem-lin, which has traditionally been very wary of its eastern neigh-bour. Pipelines are intensely po-litical beasts when they are in the planning stage, but once constructed they are the geo-po-litical equivalent of marriage. The Turkmen gas pipeline fol-lows on the heels of a new Kaza-kh oil pipeline to China that rounds out the new eastward-looking energy transport infra-structure. The fi rst phase of the Kazakh oil pipeline went into operation in July last year; a sec-ond phase will link Kaza-khstan’s rich Caspian oil re-sources to China.

Russian responseThe increased competition has led the Kremlin to raise its game, too, and it is hitting back by beef-

ing up its own energy transport infrastructure.Underpinning the annual clash between Russia and Ukraine is the fact that Russia is forced to send about 80 pc of its gas to Western European customers through Ukraine, as there is only one pipeline that connects Rus-sia to the rest of Europe.Russia has proposed two new routes that run to the north and south of Ukraine to diversify the supply routes: Nord Stream runs from northwest Russia to Ger-many; and South Stream runs from southern Russia under the Black Sea to Turkey. Mr Putin ordered construction to start on Nord Stream at the end of last year, after the pipeline got the last environmental per-mits from Germany at the end of 2009.The other members of the EU along the way – the Baltic’s and Poland – were miffed with Chan-cellor Gerhard Schroeder, who negotiated the deal (and is now chairman of the company that will run the pipeline) for by pass-ing them and so denying them any of the transit duties.The pipeline is scheduled to go

online in 2011 with a through-put of 27.5 bcm a year. South Stream, the second pipe-line, will close the circle, but this pipeline has had a harder time of it. It is competing with the EU-sponsored Nabucco pipe-line that runs over roughly the same route, but is supposed to source gas from Central Asia, missing Russia out. The problem is that there is only demand enough to support one pipe-line.The Kremlin worked very hard in 2009 to get South Stream off the ground and managed to sign a string of deals with states like Bulgaria and Croatia, who will be among the pipeline’s main customers. By the end of the year, it looked like Russia had won the race, largely because the new Trans-Asian will soak up much of Turkmenistan’s spare gas. However, never say never when talking about pipeline politics; the issue will really be decided when someone actually starts building their pipeline.

More in the pipelineWith the gas transport problems well in hand, the Kremlin has

turned its attention to rounding out the oil pipeline infrastruc-ture. Like the Russian gas pipes that will now run both, east and west, Mr Putin relaunched a new and ambitious Eastern Si-beria Pacifi c Ocean (ESPO) oil pipeline on December 29. The 3,000-mile ESPO is the longest and most expensive of all the pipeline plans on the table at the moment. Construction began in April 2006, but the project has regained its momentum since a branch to the China’s Daqing oilfi eld was started in April last year . This Chinese dogleg will come online fi rst in 2011, carry-ing 15 mn tons of oil a year and the second phase is due to be fi n-ished in about 2014. At full ca-pacity, it can carry 80 mn tons of oil a year and will cost at least $30 bn to build.But the success of the pipeline will depend on the currently un-touched oil resources thought to exist in eastern Siberia; optimis-tic forecasts say the Eastern Si-berian fi elds will reach produc-tion levels of 70-80 mn tons a year around 2030, but serious exploration of the region will only begin this year. -

Tyumen region of Russia. An employee of the Russian oil company turning off a valve at an oil well

BEN ARISBUSINESS NEW EUROPE

Knitting pattern: a latticework of pipes will weave together countries in Europe and Asia

editor.india@rg.ruwww.rbth.ru/letters

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NEW WAVE OF PRIVATIZATIONS:WHO WILL GET THE PICK OF THE BUNCH?

05BOOKMARKS RUSSIA INDIA BUSINESS REPORT

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_MARCH 10_2010 Energy

www.gazpromexport.ru Gazpromexport – the world’s leading exporter of natural gaswww.rusenergy.com/en Russian oil and gas industry news

Looking for an escape from the petro-dollar

Russia is one of the few oil-producing countries in the world where the majority of oil production is in the hands of private companies. Taxing oil so heavily means that the ulti-mate benefi ciary of Russia’s oil wealth is (in theory) the Rus-sian people, not the oligarchs who own the companies. More demonstrably, the high tax on oil allows low taxes on every-thing else which should bolster diversifi cation.Of course, it doesn’t work quite so well in practice, which is highlighted by the other half of the equation: the domi-nance of oil and gas in the ex-port revenue.Taxes on real sector companies may be low but the value of the rouble is high, making exports uncompetitive in the interna-tional markets. The tide of pet-rodollars causes the so-called Dutch disease that inevitably drives up the value of the cur-rency. The upshot is Russia’s other exports – such as planes, power stations and caviar – cost more than they should.To its credit, the Central Bank of Russia has worked hard to try to keep the value of the rou-ble down just as the price of oil soared 15-fold since 1998.The state was enjoying a huge tax windfall from oil, but the frustrated Duma deputies were unable to touch any of the $600 bn that was locked up by fi nance minister Alexei Kudrin in the stabilisation fund, up from a mere $9.1 bn in 1998.

Kudrin’s motive was to build up reserves in case there was another crisis, which turned out to be a good idea. But, even more importantly, the stabili-sation fund “sterilised” the oil windfall money: as the wind-fall money can’t be spent; it doesn’t push up either infl ation or the value of the rouble.Still, all this money sloshing about (Russian oil companies still make a packet from the part of the oil price not taxed below $27) kept infl ation and appreciation high in recent years. And that is what all this talk of “modernisation” is about in Moscow. On Novem-ber 12, Russian President Dmitry Medvedev gave his fi rst state-of-the-nation speech, most of which was dedicated to how the state needs to mod-ernise the Russian economy. It is an old theme and the Krem-lin’s record has not been good so far, distracted by crises, ter-rorists and battles with oli-garchs. Finally, a serious start was made in 2007 after infl a-tion fell to single fi gures for the first time in modern history and the state showcased a $1 trln investment programme to rebuild Russia’s dilapidated infrastructure.But that plan, like most of the others, has been derailed by this crisis. While the Kremlin may hope for a return of $100 oil soon, what would be best for the country is cheap oil that will force the government to concentrate on the pro-gramme espoused by Mr Medvedev. -

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Gazprom to join Peace Pipeline project

The reason why Gazprom is ready to turn away from Europe to the booming markets of South Asia is obvious. “After a while, Gazprom will face a big chal-lenge in Europe,” says Lukoil Vice President, Leonid Fedun. In the coming years, the EU coun-tries will try to limit consump-tion of hydrocarbons and look for alternative fuels and supply routes. Gazprom needs to enter new markets to become less de-pendent on Europe, currently the main consumer of its gas.Russia’s new energy strategy has already chosen an alternative: it has declared the booming Asia-Pacifi c Region (APR) as its pri-ority. By 2030, the share of oil and gas supplies to the APR, as planned, will account for 20-25

pc of its total exports versus 6 pc today. All the forecasts say Eu-rope is taking a backseat as the main buyer of Russian hydrocar-bons. There is still some room in the booming APR markets and Gazprom has a chance to be there on time. Analysts say Gazprom is play-ing a multidimensional chess game on the global chess board. In the geopolitical fi eld, by join-ing the Peace Pipeline project it will boost Russia’s reputation as an energy superpower in the APR region. It can be noted that an alternative Turkmenistan-Afghanistan-Pakistan-India (TAPI) project is being promot-ed by the US. It is longer than the Peace Pipeline, but its ca-pacity is less, just 33 bn cubic metres. And the complicated situation in Afghanistan (and its geography) is working in fa-vour of the Peace Pipeline. Last year, Gazprom and the Na-tional Iranian Oil Company agreed to create a joint venture to develop Iran’s massive oil and gas fi elds of Southern Pars and Kish, which will provide gas to fi ll the Peace Pipeline. Gazprom would hate alternative sellers to appear in Europe as it wants to remain a strategic player in the solvent gas market there. In par-

YURI SOLOZOBOVRIR

Russian gas giant Gazprom will join the Peace Pipeline project, aimed to deliver natural gas from Iran to Pakistan and India. Thus, the company plans to participate in sharing profits from exports to the booming Indian market as well as redirect Iran’s gas from West to East while Russia remains the key player in the European market.

ticular, it would like to keep Iran out of Europe. Meanwhile, the EU has been showing signs of growing interest in Iranian gas as an alternative source of fuel in the wake of “Russian-Ukrainian gas wars”.The Russian gas monopoly today sees as the main challenge the Nabucco pipeline, which pur-sues the strategic aim of linking Iran to Europe via Turkey. Gazprom would certainly prefer to divert Iranian gas to India rather than compete with Iran in Europe. By assisting the con-struction of a trans-Asian pipe-line, Gazprom is reorienting Iran’s energy resources to the east and making the Nabucco project still less viable. So, the stakes around the Indian projects are going up and up.Gazprom’s share in the Peace Pipeline project is still unknown. But most probably it will be a quarter of all the project’s shares. “In current prices, the pipeline will probably cost $8-10 bn. If Russia or Gazprom get 25 pc and the ratio between equity and borrowed capital is 30 to 70, Rus-sia’s contribution will be a mere $600-750 mn,” says Alexei Kokin, senior analyst with IFK Metropol. The gas pipeline will be 2700 km long with a capacity of approxi-mately 55 bn cm a year. The smaller part will be delivered to Pakistan while India will get the lion’s share (62.5 pc).-

Can shale gas fi x the energy dilemma?

The gas industry’s “quiet revolu-tion”, as Tony Hayward, chief ex-ecutive of BP, described it, began in North America, where new techniques, such as horizontal drilling and hydraulic fractur-ing, have allowed energy fi rms to access hard-to-get-at deposits of unconventional tight and shale gas, as well as coal-bed methane (CBM), at much lower costs than thought possible fi ve years ago.By some estimates, the US now has more than 57 trln cubic me-tres of gas available, giving it over 100 years of supply and transforming it in one fell stroke

into a gas self-sufficient country. By comparison, Russia’s reserves of conventional gas, the largest in the world, are just over 43 trln cm, according to BP. Experts be-lieve unconventional gas re-sources could add as much as an-other 250 pc to world reserves. Those techniques pioneered in North America are spreading to Europe and other parts of the world. ExxonMobil, which in December shocked the markets by announcing a $41 bn takeover of US independent gas producer XTO Energy, has already drilled for shale gas in Germany and is looking at drilling more wells in Hungary and Poland. Cono-coPhillips is also looking at Po-land in a joint venture with Lane Energy. And Austria’s OMV is looking for shale-gas deposits in the Vienna basin.On the other hand, experts argue there are many myths surround-ing shale production and that the environmental consequences – such as intensive water use – are often overlooked. Hydraulic

NICK WATSONBUSINESS NEW EUROPE

The gas industry’s quiet revolution in shale gas could redetermine the key players in the global market. The US and Western Europe stand to benefit from huge untapped reserves, while Russia is quick to point out the potential negative environmental effects.

fracturing does involve injecting a mix of water and chemicals at high pressure in order to create fractures in the rocks to get the gas out. Industry and environ-mental groups argue this process has a signifi cant environmental impact – the fracturing fluid could contaminate water sup-plies – and could even induce seismic events. Such concerns

In mid-February, the first

coalbed methane (CBM) pro-

duction began in the huge Kuz-

bass coal basin in West Sibe-

ria. Kuzbass alone reportedly

contains 13 trln cubic meters

(cm) of CBM, a jaw-dropping

amount comparable with the

giant Urengoy gas field, one of

the world’s largest repositor-

ies of natural gas. According

to Gazprom CEO Alexei Mill-

er, Russia has enormous un-

Tapping coal-bed methane

A new gas reserve discovery in Russian North Siberia

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about 84 trln cm, or a third of

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resources.

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duce as much as 4.2 mn cm of

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production growth as new ar-

eas come on line with annu-

al output of 18-21 bn cm per

year in the long term. Russia

has quite a few large coal ba-

sins.

prevented the US gas fi rm Ches-apeake from drilling for shale gas in New York state. Luckily for European policymakers, who are worried more about energy’s security than its purity, many of the most promising reserves are to be found in European coun-tries that are most worried about Russia’s infl uence on their ener-gy supplies. -

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The BRIC nations have been impacted by the global melt-down, but countries such as China and India are already back in fast growth mode and are starting to implement their exit strategies from the crisis-busting stimulus programmes that are holding the rest of the world up. Indeed, a Chinese suggestion that it would tighten

Opinion Does Russia still belong to the BRICs, despite poor performance during the financial crisis?

The most unloved BRIC

Putin’s Indo-Russian decade"Our President Putin has agreed to start completely new, power-ful and wide-ranging relations with India," they were saying. He wanted to get Russia back to the position of India’s best and trusted friend. And now, with this 123 deal, America will squeeze us out of India in more sense than one”. That was George Bush era, you have to remember, when Russia and the US – at best – stopped talking to each other.There were people in Moscow, admittedly, who were publicly saying that Russia may actual-ly profit from the 123 agree-ment. India is big, it cannot be monopolised even by a country like the US, they claimed. The 123 agreement opens the way to the Russian nuclear energy, too, setting up precedents. You just have to wait.Today, India has a set of two al-most similar nuclear energy agreements – with USA and Russia. That surprising news came in only recently. And the moment one partner tries to exert pressure, India may im-mediately turn to the other for the same technologies and serv-ices. There will be no monopo-lists on the Indian market, ever.

You have to be Vladimir Putin with his patience and restraint to wait for such a result for so many years. So in the end, today, having disposed of global poli-tics in that issue, he comes to India to negotiate details. Like, how many reactors Russia can provide. And when.The first Russian reactor, in

Kudankulam, starts generat-ing power right this summer, another one is under construc-tion. Next might be upto 12 others, in the same ground and in others. West Bengal has been mentioned, as well as “a third area”. It is a huge contract, and it will take more than one visit to ne-

gotiate millions of things, like timing, the type of reactors, not to mention the money. 12 reac-tors is the top figure among several others mentioned. But even if it comes only to half of this amount in the end, it will stay a huge contract. It will change the economic land-scape of India, for sure, but it

CooperationBOOKMARKS

06www.goldman-sachs.com/ideas/brics Goldman Sachs about BRICs www.businessneweurope.eu Business magazine focusing on emerging European markets

will also change drastically the Russian nuclear power indus-try for years to come. It may even mean that Russia will be unlikely to have capacities to build reactors anywhere else in the coming 5-10 years. So you can imagine that every step on this way will be very carefully considered. For those privy to pains of forg-ing the new Indo-Russian rela-tions, nuclear success comes as a big surprise. Equally surpris-ing was the unexpected feat of bilateral trade – it has reached $7 bn in the pre-crisis 2008. And that was after years and years of top-level lamenting about trade’s inability to move higher that lethargic $2-3-4 bn. Now we talk about $10 bn annually, and more.Even the global crisis could not prevent Russia and India from success. Who would know, 10 years ago, that the profi ts of In-dian medical drugs sales in Russia would skyrocket by 23,5 pc in 2009, the year when all chart arrows point down, glo-bally? We talk about joint pro-duction of pharmaceuticals now, while joint research in military armaments has been conducted for some years al-ready.So, all in all, the plans to forge

completely new set of bilateral relations, laid down in 2000, met with a surprising success. Which, incidentally, means that the current Russian President, Mr. Dmitri Medvedev, will have to come up with new strategies for the years ahead. In the meantime – a Russian Prime Minister, in charge of economy, is not exactly sup-posed to discuss with India is-sues like Afghanistan. Dr. Man-mohan Singh has been convers-ing with President Medvedev on that subject in December, in Moscow. But – do you seriously believe that Vladimir Putin, with his 10-year experience at the top, will not mention such subjects? American war in Afghanistan may end with Taliban eventu-ally grabbing back power, and Russian Prime Minister keeps silent about it? No, Central Asia will just have to be a focus point for Russia and India for a long time. As well as Indian Ocean, navy, airspace industry, gas and oil. Vladimir Putin was the one who began these talks on the serious basis. He will participate in it as long as he is around. -Dmitri Kosyrev is a RIA Nov-osti Political Columnist

BEN ARISSPECIAL TO RUSSIA NOW

rates sent stock markets around the planet plunging at the end of January. Why would they do that? Because they are growing too fast.“Crisis” was the most used ex-pression at the recent Davos Forum, but “emerging markets” came in a close second. The world's leading businessmen have their eyes now on these new “wunderkinder” of the glo-bal economy, but the very slo-gan of the event belies the fact that, actually, most of their at-tention still remains at home.“The emerging markets are looking much better now,” said Mark Green, senior economist at HSBC, “but the West is on life support and surviving on the drugs of stimulus.”But where was Russia in all this? Last year, there was a Rus-

sia session at Davos as business leaders focused on the booming economy. This year, while China and India’s names were ban-died about by nearly everyone, Russia is increasingly missed out altogether. Even the op-eds

about the BRIC quadriga skip over Russia’s name. A few have even called for the “R” to be re-moved permanently from the acronym.The reason? Russia had a bad crisis and the other BRIC mem-

bers didn’t; it was the only one of the four to suffer from sub-stantial and dramatic econom-ic contraction. China and India are rapidly returning to their habitual fast growth, while Russia is recovering from 8.8 pc contraction in 2009 and is ex-pected to put in somewhere be-tween 1.5 pc and 5 pc of growth this year (depending on what happens to oil prices).Should Russia be booted out of BRIC? It is certainly the least loved of the four. Jim O’Neill, the chief economist at Goldman Sachs, who coined the term in 2001, says no, but admits Rus-sia disappointed last year. How-ever, in a recent note he argued that the economy was dragged down by its exposure to the oil price and heavy borrowing in the international credit mar-

kets, but expects the country to return to strong growth this year and next – thus justifying its membership of the club.The 1998 financial crisis lev-elled Russia’s nascent banking sector and forced the govern-ment to default on its interna-tional debt, wrecking the state’s reputation. This time round, the government has emerged rela-tively unscathed: none of the big banks or companies have gone bust; the government still has the third largest foreign currency reserves – about fi ve times more cash than either the UK or the USA – and the low-est external debt of any major country. Even the budget defi cit (the fi rst in a decade) is expect-ed to fall to between 5pc and 1pc of GDP, depending on oil prices, this year.

What most commentators miss is that the boom years have transformed Russia from a pet-ro-economy to a normal one where consumers, not hydro-carbons, are the long-term driv-ers of change. Roustam Tariko, founder of Russian Standard Bank (and owner of a vodka by the same name), said that both his businesses took a hit, but both are back to 60-70 pc of 2008 levels. “Everything relat-ing to the Russian consumer is going better and faster than with business,” says Tariko. “The situation is stabilising and we will go back to growth, but clearly it will be slower than be-fore.” A little growth would go a long way to earning Russia a little more love; the strong re-covery some are predicting should make it hot again. -

For almost 10 years , the BRIC nations (Brazil, Russia, India and China) have been considered growth champions, promising big profits for investors. But the global economic crisis has shown that Russia is still dependent on commodities. So it's time to take the 'R' out of BRIC?

Reactor hall in Leningrad Nuclear Power Plant. Russia is ready to build in India up to 12 civil nuclear reactors

Russia is expected to return to strong growth soon – and so justify its membership of the BRIC club

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IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_MARCH 10_2010 Cooperation

www.indianembassy.ru Embassy of India in Moscow www.rus-ind.com Find more information about trade and economic co-operationen.fondsk.ru Strategic culture foundation magazine

Economy The mutual trade is far behind the potential of our countries

India, Russia keen to bolster economic ties

Trade and economic relations, an important component of the growing Indo-Russian strategic partnership, have been demon-strating strong positive trends in recent years after more than a decade of stagnation. The bilat-eral trade turnover that was around $2.5 bn for most part of the post-Soviet period has grown by 30 pc annually during the past couple of years to over $8.5 bn. The structure of the trade also has undergone a pos-itive change. India probably is the only country to which Rus-sian exports is dominated not by energy and raw-materials but by machinery and equipments.Another notable trend in our bi-lateral trade is that India and Russia are perhaps the only major countries that have seen robust growth in their mutual trade volume despite the global economic crisis.

Indo-Russian bilateral trade has shown consistent growth in recent years and the trend is expected to continue in the foreseeable future. Other areas of cooperation between the two countries are as strong as ever before. Prime Minister Vladimir Putin’s impending visit to India is expected to provide the impetus to raise Indo-Russian relations to new level.

ARUN MOHANTYJAWAHARLAL NEHRU UNIVERSITY

The growth in mutual invest-ment in recent years is also a matter of great satisfaction. India has made signifi cant in-vestments in the Russian energy sector. India’s ONGC Videsh is investing $2.5 bn in Russia’s Sa-khalin-1 oil and gas project, which is India’s largest invest-ment abroad and one of the larg-est foreign investments in Rus-sian economy. India has recent-ly purchased the Imperial Ener-gy Company operating in Russia for $2.58 bn. India is also keen to acquire stakes in the huge Sa-khalin-3 energy project.Private sectors of both countries are also investing in each other’s economy. Russia’s AFK System is planning to invest more than $5 bn in India’s telecom sector, which would be Russia’s largest private sector investment in India. India’s Sun Group has ac-quired a 25 pc stake in Russia’s leading energy company-Itera. A noteworthy feature of our bi-lateral economic cooperation is joint ventures in high-tech sec-tor. This productive cooperation takes place in several vital and sensitive sectors like defence, space, nuclear science and tech-nology. Indo-Russian defence cooperation has grown from a buyer-seller relationship to joint production and marketing. The world’s most effective superson-ic missile BrahMos is a glaring example of such productive co-operation in the high-tech sec-

tor. The proposals for joint pro-duction of multi-role transport aircraft and fi fth generation air-craft that had its maiden fl ight recently by India and Russia re-fl ect the strategic nature of our military-economic cooperation. A unique feature of our strategic partnership is that the high-tech sector is gradually dominating our military-economic coopera-

tion. The long-term defence co-operation agreement signed during the last Indo-Russian summit held in December 2009 at Moscow has many projects for such cooperation. Russia can play a signifi cant role in strengthening India’s energy security by building nuclear plants on Indian soil. Nuclear co-operation with Russia has a number of advantages. First of all, Russian technology is cost-effective and cheaper while being at par or even superior to technology from other countries. Secondly, Russia does not attach conditions in the deal like others, and would ensure life-long fuel supply to its reactors, apart from providing reprocessing technol-

ogy to India. Given the trustwor-thy relations that we have in this sector for decades, India and Russia would make ideal part-ners in this area for more mean-ingful cooperation.India and Russia have the larg-est programme between any two countries for cooperation in sci-ence and technology. Industrial application of the results of the cooperation between the scien-tifi c institutions of our countries would provide strong impetus to our economic cooperation. Rus-sia still remains a powerhouse of high technology and India is Russia’s preferred partner in this sector. Though France and China had evinced keen interest to be Moscow’s partner in the project for development of fi fth generation aircraft, Russia chose India as its trusted partner in this sensitive venture. India and Russia are genuine and natural strategic partners enjoying robust political rela-tions. However, the current level of bilateral trade and economic cooperation does not match their high level of political rela-tions nor does it refl ect the eco-nomic potential of both coun-tries. Both sides should contem-plate serious measures to pro-vide new content to our economic cooperation and qual-itatively raise it to new levels. Russian Prime Minister Vladimir Putin’s forthcoming visit to Delhi provides such an

opportunity. Putin in many ways is the architect of our mul-ti-faceted strategic partnership. His deep sense of love and sym-pathy towards India is refl ected in the ‘best friend of India in Russia’ statement that he made after being elected as the Presi-dent and his mentioning of ‘India as the country of his childhood dream’ in his autobi-ography. President Putin’s fi rst visit to India in October 2000 became a historic one in many ways by formalising the strate-gic partnership between our two countries and opening a new chapter in our time-tested friendship. It is this visit that heralded the holding of regular

annual Indo-Russian summits, making it a permanent feature of our relations in subsequent years. Putin’s forthcoming visit to India would be his fi rst visit to our country in the capacity of Russian Prime Minister. How-ever, given his understanding and sympathy towards India, the visit promises to be a mile-stone as several important agreements are planned to be signed during the tour are des-tined to provide new quality and content to our relations in many directions.-JNU professor Arun Mohanty is the Director of the Eurasian Foundation.

Works on Chaivo field, Sakhalin-1 project. Commercial oil/gas pro-

duction from this field started on October 1, 2005.

'We should provide new content to our economic coopera-tion and qualitatively raise it to new levels'

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IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_MARCH 10_2010Aviation

www.sukhoi.org/eng Sukhoi Company websitewarfare.ru Find more information on Russian modern and perspective weapons systemswww.rbcnews.com English-language business news

Traditionally fi ghters are divid-ed into generations, but often one aircraft combines charac-teristics of both current and fu-ture machines. Generally speaking, the first generation includes the subsonic jet air-craft which appeared after the Second World War and which has cannon armaments (MiG -15 and the MiG-17 are best known examples of this type).The second generation are su-personic fi ghters carrying mis-sile weaponry; for example, the MiG-19 and the MiG-21.The third generation are air-craft with more powerful en-gines, improved radar and sometimes altered wing geom-etry. In the USSR, examples of this are the MiG-23 and the MiG-27 and in the USA, the F-4 Phantom.The fourth generation are air-craft which have new on-board equipment, powerful radar and a wide-ranging armament sys-tem, including everything from 30mm cannons to guided mis-

siles and smart bombs. In the USSR, these aircrafts are the MiG-29 and the Su-27, and in Western equivalents are the F-15, the F-16, the Mirage 2000 and the Grippen.The development of the fourth generation proceeded rapidly. Based on the “old” MiG and Su-khoi models, fi ghters such as the MiG-29SMT, the MiG-35 and the Su-35 came into service, and these were almost as advanced as fi fth generation aircraft. What defined them was their excep-tional manoeuvrability. This was on account of their vectored thrust engines and phased array radar systems, their multirole capability and the replacement of the basic gunsight with com-puter displays and other innova-tions.

A “predator” at a priceThe idea of building a combat aircraft for the 21st century was conceived in the USSR and the USA simultaneously. Work began at the end of the 80s. For obvious reasons, the USA had a headstart and were able to be the first to put a fighter into service, an aircraft called the F-22 Raptor. The demands placed on the fi fth generation are signifi cant. The aircraft should have a super-sonic cruise capability, low

radar signature, a powerful radar system providing a fore-shortened view, a computerised “brain” capable of controlling the flight and correcting any input errors of the pilot.Many specialists consider that the main defining feature of a fi fth generation aircraft should not be its unique technical char-acteristics, but its ability to ori-entate itself in modern warfare’s constantly evolving system of conduct. There is even an expres-sion ‘to enter the system of sys-tems’. In the F-22, the Americans succeeded in realising nearly all of the demands of fi fth genera-tion fi ghters. But at what a price! The cost of the project exceeded the USA’s military budget by $65 bn. The initial cost of one plane amounted to $140 mn and the hourly operating cost came to $44.000. During the process of perfecting the F-22 and improv-ing its features, the cost of one plane was approaching $350 mn. Such extravagance was dis-pleasing even to the Pentagon, and it declined further purchas-es of the most expensive fi ghter in the world. Today, production of the F-22 has been halted.

Can Russia take the lead?In terms of appearance, the T-50, or as its still known the PAK FA (Perspective complex of front

aircraft), is similar to the Raptor. But it may turn out to be much better and more economical. It is impossible to compare the fea-tures of the two aircraft, since everything to do with the T-50 is still classifi ed information. But there are a few things that can be discussed. With its supersonic cruise speed, the Raptor can enter a combat zone quickly. But what next? Then it has to trans-fer to subsonic speed so as to be able to open the doors of the ar-mament store and utilise the missiles which are hidden in the belly of its fuselage. Russian air-craft designers were the fi rst in the world to manage to solve the problem of opening the arma-ment store doors and releasing a missile when in supersonic fl ight. If this is the case, then the PAK FA already has the edge over the F-22.In a close combat manoeuvre, the American fi ghter would be at a disadvantage just on ac-count of the exceptional ma-noeuvrability of the T-50. More-over, the Russian fi ghter’s en-gines with their vectored thrust allow the pilot to apply a range of anti-missile manoeuvres, which no other aircraft can do at this point in time. In the case of dog fi ghts at middle and far ranges, the new missiles are cer-tainly no worse than foreign

equivalents. Russia also has ac-tive phased array radar sys-tems.As far as the electronic “brain” is concerned the avionics of the fifth generation are also of a high quality, and at the moment they are being tested on the Su-35 and the MiG-35.The cost of production of the T-50 is estimated to be $15 bn, which is four times less than the F-22. The cost of the production model is not expected to exceed $100 mn and according to state-ments of the “Sukhoi” , opera-tion costs will be cheaper than those of the Su-27.

A winning co-operation When the Russian Indian col-laboration on the creation of a fi fth-generation prototype air-

craft based on the experimen-tal T-50 starts to become a re-ality, then we can expect a real breakthrough. Thanks to this, the Su-30MKU came into ex-istence – the best heavyweight aircraft to date. It is hoped that through the combined efforts of Russian and Indian special-ists, the PAK FA will be fi lled with the latest equipment and fi tted out with the best arma-ments. The main task is to fi-nance and activate fl ight test-ing of the T-50. And then in three years the VVS will receive the fi rst consignment of these fi ghters for experimental use in the forces. From 2015, the world market for heavyweight combat aircraft will be filled with only Russian-Indian air-craft. -

Joint projectJoint project The development of the Russian-Indian fifth The development of the Russian-Indian fifth generation jet fighter will mark a breakthrough in military aviationgeneration jet fighter will mark a breakthrough in military aviation

T-50 F-22

March 1.7 Cruising speed March 1.7

March 2.75 Maximum speed March 2.5

2.000 km Range 2.000 km

20.000 m Service ceiling 20.000 m

37.000 kg Maximum take-off weight 38 38.000 kg

The T-50 will cost less than $100 mn which is much less than

Lockheed Martin/Boeing F-22 Raptor

The T-50’s specifi cations compared to Lockheed Martin/Boeing F-22 Raptor

The T-50 will incorporate the latest developments in a military fighter, including low visibility, super-sonic cruising speed and highly integrated control systems. It will be able to fulfil military tasks in any weather conditions and at any time of the day and use runways only 300 – 400 metres in length.A fifth generation

combat aircraft has taken to the air in Russia. This plane is as yet unnamed – it is just known as the T-50. Following its maiden flight earlier this year, the aircraft has now reached the flight testing stage.

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